Denial of GST Exemption for Imported Wheat Clearance Services: Madras HC quashes AAR ruling against Naga Ltd's Supplier [Read Order]

The Madras High Court, in a significant move, quashed the ruling of the Authority of Advance Ruling (AAR) against the supplier of Naga Limited, being unsustainable on the correctness of the reasoning.

The petitioner had engaged service providers for clearing the imported wheat from seaports. The services include the activity of loading, unloading, packing, storage or warehousing of the imported wheat and its further clearance to the petitioner's factory.

The petitioner sought for an Advance Ruling under Section 97 of CGST Act, seeking clarification on whether the services rendered by the 2nd respondent in respect of wheat imported by the petitioner is exempted under S.No.54(e) of the Notification No.12/2017-CT dated 28.06.2017.

The application filed by the petitioner was rejected by the Tamil Nadu Authority for Advance Ruling vide Order No.18/AAR/2018 dated 29.10.2018 on the ground of lack of jurisdiction as only a supplier on whom incidence of tax lies can seek an Advance Ruling as per Section 95(a) of the CGST Act and the petitioner being a recipient of the above services cannot maintain the application under Section 97 of CGST Act.

Thereafter, the 2nd respondent i.e., supplier in the contract with the petitioner filed an application for Advance Ruling dated 02.01.2019 in relation to the applicability of the above Exemption Notification with regard to the services rendered to the petitioner.

The 1st respondent, Puducherry Authority for Advance Ruling passed the impugned order ruling that the above services are not entitled to exemption on the ground that the imported wheat with regard to which the services were rendered was not meant for the primary market but instead meant / intended to be used by the petitioner at its factory for further processing of the wheat imported into atta, maida and sooji.

Aggrieved by the impugned order and left with no other remedy, the petitioner has filed the present writ petition.

The present dispute is with regard to the contract between the petitioner and the 2nd respondent, the supplier/import service provider for provision of the above services.

The state representative put forward the case that, the benefit of the exemption under S.No.54(e) to the Notification No.12/2017 is available only to Services of loading, unloading, packing, storage or warehousing till the products are taken to primary market for disposal and as a corollary any service rendered / extended beyond the stage of primary market is not eligible for exemption under S.No.54(e) of the Notification No.12/2017.

The Bench observed that, “From a reading of the above notification and the definition of “agricultural produce”, it would be evident that services in relation to “agricultural produce” by way of loading, unloading, packing, storage or warehousing of agricultural produce is exempt.”

The respondents have rejected the claim of exemption under the above notification on the premise that the activities / services of loading, unloading, packing, storage or warehousing of wheat is not meant for primary market instead the wheat imported is meant/intended to be milled at the petitioner's factory into wheat products such as maida, atta, sooji, bran etc. Thus the contract between the petitioner and the supplier for services of loading, unloading, packing, storage, warehousing is not rendered in relation to “agricultural produce”, thus not entitled to

exemption under S.No.54(e) of Notification No.12 of 2017, the bench noted.

This Court remarked that the above construction sought to be placed by the 1st respondent is grossly misconceived for the following causes: –

Service of loading, unloading, packing, storage or warehousing of “agricultural produce” would fall within the scope of S.No. 54(e) and thus exempt.

On applying the definition of "agricultural produce" to the wheat that is imported and if it qualifies as an "agricultural produce", the mere fact that the buyer of “agricultural produce” intended to subject it to various other processes subsequently resulting in conversion of wheat into maida, atta and sooji would not take the services of loading, unloading, packing, storage and warehousing of the “agricultural produce” out of Serial No. 54(e) of the Exemption Notification.

Thus it was noted that, “ The reasoning in the impugned order of the 1st Respondent results in importing a condition as to the use to which the agricultural produce would be subject to in the hands of the service recipient. The above test is wholly alien to decide whether a commodity would fall within the definition of “agricultural produce” contained in the above Notification. The impugned Ruling thus suffers from the vice of arbitrariness inasmuch as it has taken into account aspects/ factors which are irrelevant.”

The Bench of Justice Mohammed Shaffiq also noted that the impugned order did a grave violation of adding conditions to exemption notification which is impermissible.

In result, it was held that, “the impugned order holding that services of loading, unloading, packing etc., rendered in relation to the wheat imported is not entitled to exemption in terms of S.No.54(e) of Notification No.12 of 2017 on the premise that the imported wheat is not meant for primary market as such but it is intended to be converted into maida, atta, sooji etc., in the hands of the recipient i.e., the petitioner herein is unsustainable.”

Notably, it was also clarified that, had only examined the correctness of the reasoning contained in the impugned ruling and has not expressed any opinion as to whether any particular transaction is entitled to exemption which would require examination of individual imports by the appropriate authority.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates